Emerging Markets Index and China A-Shares, 1995-2015

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SimpleGift
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Emerging Markets Index and China A-Shares, 1995-2015

Post by SimpleGift » Sat Jul 11, 2015 5:20 am

With the recent run-up and collapse of Chinese mainland stocks, it's instructive to take a step back and look at the twenty-year history of the Shanghai Composite Index in comparison with Vanguard's Emerging Markets Stock Index Fund (chart below).

Certainly if China A-shares had been available for investment and included in Vanguard's Emerging Markets Index (VEIEX) from its inception 20 years ago, they would have increased the overall volatility of the index fund — but they would also have increased its long-term returns.

Shanghai Composite Index (in blue) and Vanguard Emerging Markets Index (in red), 1995-2015
Image
Note: Returns are price only, just for comparison purposes.
Source: Yahoo Interactive Charts

According to FTSE, if included at their full free-float weight today with no investment restrictions, Chinese stocks in total (mainland and offshore) would constitute about 50% of Vanguard's Emerging Markets Index Fund, up from about 30% currently. Looking ahead, with Vanguard adding China A-shares to VEIEX at about 5% to start this year — and more additions likely in the future as investment quotas increase — what are your thoughts?
Last edited by SimpleGift on Sat Jul 11, 2015 6:02 am, edited 2 times in total.
Cordially, Todd

dumbmoney
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Re: Emerging Markets Index and China A-Shares, 1995-2015

Post by dumbmoney » Sat Jul 11, 2015 5:52 am

Are you sure your graph includes dividends?
I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.

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SimpleGift
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Re: Emerging Markets Index and China A-Shares, 1995-2015

Post by SimpleGift » Sat Jul 11, 2015 6:01 am

dumbmoney wrote:Are you sure your graph includes dividends?
I don't believe it does, as I think Yahoo charts are price only — which is fine for the volatility comparison we're making. I've edited the OP to make this clear. Thanks.

Here's a Morningstar total returns chart with dividends added:

Shanghai Composite Index (in green) and Vanguard Emerging Markets Index (in blue), 1994-2015
Image

Not sure if the Shanghai Composite Index includes dividends also, so this may not be an entirely fair comparison either.
Last edited by SimpleGift on Sat Jul 11, 2015 7:16 am, edited 3 times in total.
Cordially, Todd

dumbmoney
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Re: Emerging Markets Index and China A-Shares, 1995-2015

Post by dumbmoney » Sat Jul 11, 2015 6:11 am

I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.

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SimpleGift
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Location: Central Oregon

Re: Emerging Markets Index and China A-Shares, 1995-2015

Post by SimpleGift » Sat Jul 11, 2015 12:05 pm

Trying to gain a perspective on the alphabet soup of Chinese stock shares, I ran across the breakdown below from July 2012. Apparently all the share classes except A-shares are now included in the major emerging markets stock indexes, with FTSE and Vanguard also now adding 5% mainland China A-shares.

So it appears the major emerging markets indexes currently include about one-half (or less) of the total cap-weighted, free-float Chinese stock market.
  • Image
    Note: China A-shares are shown at free-float, market-cap weight,
    with no foreign investment restrictions.
    Source: KraneShares
Cordially, Todd

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